WATKINS-JOHNSON COMPANY
3333 HILLVIEW AVENUE
STANFORD RESEARCH PARK
PALO ALTO, CALIFORNIA 94304
DEAN A. WATKINS W. KEITH KENNEDY, JR.
CHAIRMAN OF THE BOARD PRESIDENT AND
CHIEF EXECUTIVE OFFICER
H. RICHARD JOHNSON
VICE CHAIRMAN
FEBRUARY 24, 1997
Dear Shareowner:
We, as well as all of the other officers and directors of Watkins-Johnson
Company, cordially invite you to attend the Company's Annual Meeting of
Shareowners, to be held at 10:00 o'clock in the morning on Saturday, April 5,
1997, at the main office of the Company, 3333 Hillview Avenue, Stanford Research
Park, Palo Alto, California 94304.
In addition to conducting the business of the meeting, we will report to you
on the progress of the Company and attempt to answer any questions you may have.
Please plan to come, but whether you can or cannot, please complete and
return the enclosed proxy card--your participation is important.
Sincerely yours,
/s/ DEAN A. WATKINS
--------------------------
Dean A. Watkins
/s/ H. RICHARD JOHNSON
--------------------------
H. Richard Johnson
/s/ W. KEITH KENNEDY, JR.
--------------------------
W. Keith Kennedy, Jr.
<PAGE>
WATKINS-JOHNSON COMPANY
NOTICE OF ANNUAL MEETING OF SHAREOWNERS
SATURDAY, APRIL 5, 1997 10:00 A.M.
TO THE SHAREOWNERS:
The Annual Meeting of Shareowners of Watkins-Johnson Company will be held at
the Company's main office, 3333 Hillview Avenue, Stanford Research Park, Palo
Alto, California 94304 on Saturday, April 5, 1997, at 10:00 a.m. to take action
upon the following matters:
1. The election of directors for the ensuing year.
2. The approval of the appointment of independent public accountants for
1997.
3. The transaction of such other business as may properly come before the
meeting.
Only shareowners of record at the close of business on February 6, 1997, are
entitled to notice of and to vote at this meeting and any adjournment or
postponement thereof.
By Order of the Board of Directors
Claudia D. Kelly, Secretary
Palo Alto, California
February 24, 1997
WHETHER OR NOT YOU PLAN TO ATTEND THIS MEETING, PLEASE MARK, SIGN, DATE AND
RETURN THE ENCLOSED PROXY AS PROMPTLY AS POSSIBLE IN THE ENCLOSED POSTAGE-PAID
ENVELOPE.
<PAGE>
WATKINS-JOHNSON COMPANY
PROXY STATEMENT
The accompanying proxy is solicited on behalf of the Board of Directors of
Watkins-Johnson Company, a California corporation (the "Company"), for use at
the Annual Meeting of Shareowners of the Company to be held at 10:00 a.m. on
Saturday, April 5, 1997, and, at any adjournment of the annual meeting, to act
upon the matters set forth in the accompanying notice. This Proxy Statement and
the form of proxy, together with the Company's 1996 Annual Report, were first
mailed to shareowners on or about February 25, 1997.
VOTING SECURITIES
Only shareowners of record at the close of business on February 6, 1997, are
entitled to notice of and to vote at the annual meeting. On that date, the
Company had outstanding 8,329,248 shares of common stock. Owners of common stock
are entitled to one vote for each share held. In the election of directors, each
shareowner has cumulative voting rights and is entitled to as many votes as
equal the number of shares held by such shareowner multiplied by the number of
directors to be elected, which votes may be cast for a single candidate or
distributed among any or all of the candidates. However, no shareowner is
entitled to cumulate votes unless the shareowner, or any other shareowner, has
given notice at the meeting before the voting of such intention to cumulate
votes.
SOLICITATION AND REVOCABILITY OF PROXIES
If the enclosed proxy card is properly signed and returned, the shares
represented thereby will be voted at the annual meeting in accordance with the
instructions specified thereon. If the proxy does not specify how the shares
represented thereby are to be voted, the proxy will be voted as recommended by
the Board of Directors. If the shares are held in trust under the Company's
employee stock ownership plans, the shares represented will be voted by the
Trustee, as directed by the participant, pursuant to the plans. Any shareowner
signing a proxy in the form accompanying this proxy statement has the power to
revoke it prior to or at the annual meeting. A proxy may be revoked by a written
notice delivered to the Secretary of the Company stating that the proxy is
revoked, by a subsequent proxy signed by the person who signed the earlier
proxy, or by attendance at the annual meeting and voting in person.
The expense of soliciting proxies will be paid by the Company. Following the
original mailing of the proxies and soliciting materials, employees of the
Company may solicit proxies by mail, telephone, telegraph and personal
interviews. The Company will request brokers, custodians, nominees and other
record holders to forward copies of the proxies and soliciting materials to
persons for whom they hold shares of the Company's common stock and to request
authority for the exercise of proxies; in such cases, the Company will reimburse
such holders for their reasonable expenses. Proxies will also be solicited on
behalf of management by the firm of D. F. King & Co., Inc., whose fee ($8,500)
and out-of-pocket expenses will be paid by the Company.
VOTING RESULTS AT LAST ANNUAL MEETING
There were 6,483,007 shares present and voting or withholding authority to
vote at the Company's Annual Meeting of Shareowners held on April 13, 1996, for
the purpose of electing directors, for approval of the appointment of
independent public accountants, and for approval of the amendment and
restatement of the 1989 stock option plan for nonemployee directors. A majority
vote was required for each of these proposals. All nominees for director were
elected by 95% or more of the votes cast, the appointment of Deloitte & Touche
as the Company's independent public accountants was approved by 98.5% of the
votes cast, and the amendment and restatement of the 1989 stock option plan for
nonemployee directors was approved by 68.8% of the votes cast.
1
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS & MANAGEMENT
The following table sets forth information as of December 31, 1996, with
respect to the ownership of the Company's common stock by any person who is
known to the Company to be the beneficial owner of more than 5% of the Company's
common stock, by all directors, by the chief executive officer and four other
highly compensated officers, and by all directors and officers of the Company as
a group.
AMOUNT AND
NATURE OF
BENEFICIAL
BENEFICIAL OWNER OWNERSHIP PERCENT
- ---------------- --------- -------
Smith Barney Holdings, Inc. ....................... 504,451(1) 6.1
Travelers Group Inc. .............................
388 Greenwich Street
New York, NY 10013
Mellon Bank Corporation ........................... 463,000(2) 5.6
One Mellon Bank Center
Pittsburgh, PA 15258
DIRECTORS AND OFFICERS
Dean A. Watkins ................................... 257,940 3.1
H. Richard Johnson ................................ 33,259 *
W. Keith Kennedy, Jr .............................. 263,025 3.2
John J. Hartmann .................................. 9,646 *
Raymond F. O'Brien ................................ 7,946 *
William R. Graham ................................. 16,476 *
Gary M. Cusumano .................................. 3,500 *
Robert L. Prestel ................................. 3,300 *
Scott G. Buchanan ................................. 51,768 *
Marc C. Elgaway ................................... 929 *
Keith D. Gilbert .................................. 58,084 *
All directors and officers as a group ............. 851,450 10
(17 persons)
- -----------
* less than 1% of shares outstanding
(1) According to the Schedule 13 G filed by such shareowner, Smith Barney
Holdings Inc. may be deemed to be the beneficial owner of the aggregate
number of shares shown of the Company's common stock with shared power to
vote, or direct the vote, over 504,451 shares and shared dispositive power
over 504,451 shares.
(2) According to the Schedule 13G filed by such shareowner, Mellon Bank
Corporation may be deemed to be the beneficial owner of the aggregate
number of shares shown of the Company's common stock, with sole power to
vote, or direct the vote, over 438,000 shares and sole dispositive power
over 148,000 shares and shared dispositive power over 316,000 shares.
The amounts shown include shares covered by options exercisable within 60
days of December 31, 1996, as follows: Dean A. Watkins, 3,000 shares; H.
Richard Johnson, 3,000 shares; W. Keith Kennedy, 202,566 shares; John J.
Hartmann, 9,046 shares; Raymond F. O'Brien, 5,946 shares; William R.
Graham, 16,176 shares; Gary M. Cusumano, 3,000 shares; Robert L. Prestel,
3,000 shares; Scott G. Buchanan, 42,782 shares; Marc C. Elgaway, 0 shares;
Keith D. Gilbert, 48,333 shares; and all directors and officers as a group,
457,793 shares. Also included are 4,015, 4,686, 929, and 751 shares for
Messrs. Kennedy, Buchanan, Elgaway, and Gilbert respectively, which are
allocated to their accounts, and 22,314 shares allocated to the accounts of
all officers under the Company's employee stock ownership plans as of
December 31, 1996, according to the plans' administrator.
2
<PAGE>
ELECTION OF DIRECTORS
(ITEM 1 ON PROXY CARD)
At the annual meeting in 1997, there are eight nominees standing for
election, each to hold office until his or her successor is elected, or until
death, resignation or removal. All of the nominees are presently directors who
were elected by the shareholders. Pursuant to the Company's Bylaws, the number
of directors may not be less than seven nor more than eleven. The number
currently fixed by resolution is eight. Shares represented by the accompanying
proxy will be voted for the election of the nominees recommended by the Board of
Directors, who are named in the following table, unless the proxy is marked in
such a manner as to withhold authority to so vote. The affirmative vote of a
majority of the common stock voting at the annual meeting is required to elect
any director. The Company has no reason to believe that the nominees will not be
available for election to serve their prescribed terms. However, if any nominee
for any reason is unable to serve or for good cause will not serve, the proxy
may be voted for such substitute nominee as the persons appointed in the proxy
may in their discretion determine.
The following sets forth certain information concerning the nominees as of
December 31, 1996, which is based on data furnished by them.
NOMINEES FOR ELECTION AS DIRECTORS
DEAN A. WATKINS
Chairman of the Board, Watkins-Johnson Company.
Director since 1957.
Dr. Watkins, 74, has been Chairman of the Board since 1967. He is a
member of the Board of Overseers, Hoover Institution on War,
Revolution and Peace (Chairman, 1971-73 and 1985-86). He is a Fellow
of the Institute of Electrical and Electronics Engineers and of the
American Association for the Advancement of Science, and a member of
the National Academy of Engineering. He is a former member of the
Board of Directors, California Chamber of Commerce (President, 1981);
a former member of the Board of Regents, University of California
(Chairman, 1972-74); a former Trustee of Stanford University, and a
former member of the White House Science Council.
H. RICHARD JOHNSON
Vice Chairman of the Board, Watkins-Johnson Company.
Director since 1957.
Dr. Johnson, 70, was President and Chief Executive Officer of the
Company from 1973 through 1987, and became Vice Chairman on December
31, 1987. He is a member of the National Academy of Engineering and a
Fellow of the Institute of Electrical and Electronics Engineers. He is
past President of the Stanford Area Council, Boy Scouts of America;
and has served as a Director of the National Association of
Manufacturers, the Santa Clara County Manufacturing Group and the Tech
Museum of Innovation.
3
<PAGE>
W. KEITH KENNEDY, JR.
President and Chief Executive Officer, Watkins-Johnson Company.
Director since 1987.
Dr. Kennedy, 53, has been President and Chief Executive Officer of the
Company since December 31, 1987. Dr. Kennedy joined the Company in
1968, and was a Division Manager, Group Vice President and Vice
President of Planning Coordination and Shareowner Relations prior to
becoming President. He a Director of CNF Transportation Inc., the
Joint Venture Silicon Valley Network, and the Defense Space
Consortium; a member of the Executive Board of The Center for Quality
Management--West, and the Santa Clara Valley Manufacturing Group; and
is a senior member of the Institute of Electrical and Electronics
Engineers.
JOHN J. HARTMANN
Financial Consultant.
Director since 1966. Mr. Hartmann, 78, is Chairman of both the Audit
and Nominating Committees of the Board of Directors of the Company. He
was a member of the Board of Directors of the Company from 1958 to
1961 and rejoined the Board in 1966. From 1967 to 1970 he was a
general partner of J. Barth & Company, investment bankers, and prior
to that was Chief Financial and Planning Officer of Kern County Land
Company. Since 1970, Mr. Hartmann has had extensive experience as a
director of and consultant to developing companies involving
widely-diverse fields of activity. He has also been active as a board
member and executive in civic organizations, primarily in the areas of
youth activities and minority affairs.
RAYMOND F. O'BRIEN
Business Consultant
Director since 1986.
Mr. O'Brien, 74, is Chairman of the Compensation Committee of the
Board of Directors of the Company. He retired as Chairman of the Board
of CNF Transportation Co. in 1995 and was elected Chairman Emeritus.
He is a Director of Champion Road Machinery, Ltd., Director of
Consolidated Freightways Corp., and a former Director of Transamerica
Corporation, Union Bank, and the Mont La Salle Vineyards. He is also a
former member of the Executive Committee of the American Trucking
Association, a former Trustee of the ATA Foundation and former
Chairman of the Western Highway Institute.
4
<PAGE>
WILLIAM R. GRAHAM
Senior Vice President, The Defense Group, Inc., Falls Church,
Virginia.
Director since 1989.
Dr. Graham, 59, is a member of the Audit and Compensation Committees
of the Board of Directors of the Company. He is a Director of
ElectroSource, Inc., was formerly a Director and President of C-COR
Electronics, Inc. He left government service in 1989 after having been
Science Advisor to the President and Director of the Office of Science
and Technology Policy; Chairman of the Federal Coordinating Council on
Science, Engineering and Technology; and Chairman of the Joint
Telecommunications Resources Board from 1986 to 1989. He is former
Deputy Administrator of the National Aeronautics and Space
Administration, and former Chairman of the President's General
Advisory Committee on Arms Control and Disarmament. In 1971 he was a
founder of R&D Associates, a defense technology company, where he
served until 1985.
GARY M. CUSUMANO
President, The Newhall Land and Farming Company, Valencia, California.
Director since 1994.
Mr. Cusumano, 53, is a member of the Compensation and Nominating
Committees of the Board of Directors of the Company. He is a Director
of the Newhall Land and Farming Company and the Zero Corporation. He
is Second Vice Chairman of the California Chamber of Commerce Board of
Directors and Chairman of the Santa Clarita Health Care Association
Board of Directors; and a member of the Stanford Sloan Alumni Advisory
Board. He is a former Regent of the University of California
(1984-1986), a former Chairman of the University of California Davis
Foundation, and former President of the University of California Davis
Alumni Association.
ROBERT L. PRESTEL
Business and Management Consultant.
Director since 1994.
Mr. Prestel, 60, is a member of the Audit and Nominating Committees of
the Board of Directors of the Company. He retired as Deputy Director
of the National Security Agency in February 1994 after serving the
Agency since 1962. During his career he was Director of Education and
Training from 1981 to 1983, and Deputy Director for Research and
Engineering from 1985 to 1990. He is the recipient of the President's
Distinguished Executive Award in 1988; the Department of Defense's
highest civilian award, the Distinguished Civilian Service Medal in
1988; and the National Intelligence Distinguished Service Medal in
1991. In 1994 he was named as a "Reinvention Hero" by President
Clinton for instilling quality management into the National Security
Agency and for being a quality mentor throughout government service.
He is a consultant to INTEC Inc. and a member of the Board of Trustees
for the Institute of Defense Analysis; and formerly was a consultant
for the Joint Advisory Committee of the Massachusetts Institute of
Technology Lincoln Laboratories. He taught mathematics part-time at
the University of Maryland.
5
<PAGE>
FURTHER INFORMATION CONCERNING THE BOARD OF DIRECTORS
The Board of Directors met eight times during 1996. Standing committees of
the Board include an Audit Committee, which met two times during 1996, a
Compensation Committee, which met three times during 1996, and a Nominating
Committee, which did not meet during 1996.
During the past year, the Audit Committee consisted of Directors Hartmann,
Prestel and Graham. Among the Committee's functions are making recommendations
to the Board of Directors regarding the continued engagement of independent
auditors, reviewing with the independent auditors and Company financial
management the plans for and results of the audit engagement, reviewing the
adequacy of the Company's system of internal accounting controls, and reviewing
and approving audit and nonaudit fees.
The Compensation Committee consisted of Directors O'Brien, Graham and
Cusumano. The Committee's primary functions are to establish and administer the
policies that govern the Company's executive compensation programs and to
regularly evaluate these programs for their effectiveness in relation to the
Company's financial performance.
The Nominating Committee consisted of Directors Hartmann, Cusumano and
Prestel. The Committee's primary function is to direct the search for qualified
candidates to fill Board vacancies that may occur and to recommend them to the
full Board.
No incumbent director attended fewer than 75% of the aggregate of (1) the
total number of meetings of the Board of Directors and (2) the total number of
meetings held by all committees of the Board on which he served during 1996.
DIRECTOR COMPENSATION
Directors who are not employees of the Company each receive an annual fee of
$21,600 and a fee of $300 for each Board or Committee meeting attended. In April
1994, Drs. Watkins and Johnson retired as employees of the Company and the Board
approved execution of certain consulting agreements with them, as founders; the
agreements specify an annual fee payable to Dr. Watkins in the amount of
$265,000, and an annual fee of $125,000 payable to Dr. Johnson, in addition to
the regular directors' fees.
Directors who are not employees also participate in the 1989 Stock Option
Plan for Nonemployee Directors (the "1989 Director Plan"), amended and restated
effective as of January 29, 1996, which was approved at the Company's 1996
Annual Shareowners' Meeting. It provides for each non-employee director to
receive a stock option grant of 3,000 shares annually. In addition, the plan
provides that new directors shall, upon election by the shareowners, receive an
automatic, one-time grant of options to purchase 3,000 shares of the Company's
stock. These options provide for the purchase of shares at not less than the
fair market value of the stock on the grant date, fully vest six months after
grant, and remain exercisable for a period of ten years from the date of grant.
Vested options expire one year after the optionee's date of service ends. The
amendment also added 150,000 shares to the previous 200,000 which were reserved
for issuance by this plan. Options granted to Directors before April 1996 begin
to vest and become exercisable after two years from grant at a rate of 33 1/3 %
per year. The expiration schedule for all grants is the same.
The aggregate number of shares which may be issued under the Plan is 350,000
shares of common stock; and as of December 31, 1996, there were 69,590 shares
subject to outstanding options, and there were 217,909 shares available for
future grants. At December 31,1996, the following directors held exercisable
in-the-money options: Dr. Graham, 12,270 shares; Mr. Hartmann, 5,140 shares; and
Mr. O'Brien, 2,040 shares. The term "in-the-money" means that the grant price of
the options was less than the market price of the Company's stock on December
31, 1996, which was $24.50 per share.
In 1995 a directors' retirement plan was authorized. This plan stipulates
that each director who has completed at least five years of active service as a
director shall, upon retirement from the Board, receive one-half of his/her
quarterly fee as director for a period of years not to exceed one-half of the
years of service as a director after April 8, 1995.
6
<PAGE>
EXECUTIVE COMPENSATION
The following tables set forth all annual and long-term compensation,
including stock option awards, paid or to be paid to the Company's chief
executive officer, and the four other most highly compensated executive officers
during the fiscal years indicated.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG TERM COMPENSATION
-------------------------------------------- -------------------------
RESTRICTED SECURITIES ALL OTHER
OTHER ANNUAL STOCK UNDERLYING COMPEN-
SALARY BONUS COMPENSATION AWARD(S) OPTIONS/ SATION
NAME AND PRINCIPAL POSITION YEAR ($)(1) ($)(2) ($)(3) ($)(4) SARS (#)(4) ($)(5)
- --------------------------- ------ ----------- ---------- -------------- ------------ ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
W. KEITH KENNEDY ........... 1996 $459,290 $ 36,657 -0- -0- -0- $ 39,211
President & Chief 1995 440,000 87,431 -0- -0- 110,000 87,685
Executive Officer 1994 440,000 213,579 -0- -0- 100,000 210,120
DEAN A. WATKINS ............ 1996 292,000 -0- -0- -0- 3,000 -0-
Chairman of the 1995 292,000 -0- -0- -0- -0- -0-
Board 1994 285,750 2,872 -0- -0- -0- 4,415
KEITH D. GILBERT ........... 1996 209,150 12,732 -0- -0- -0- 17,156
Executive Vice 1995 267,800 9,636 -0- -0- 20,000 6,000
President 1994 267,800 50,021 -0- -0- 30,000 54,439
MARC C. ELGAWAY ............ 1996 208,640 68,646 -0- -0- 30,000 70,817
Telecommunications 1995 86,000 33,333 -0- -0- 40,000 -0-
Group President
SCOTT G. BUCHANAN .......... 1996 208,370 12,827 -0- -0- -0- 17,268
Vice President & Chief 1995 197,700 34,260 -0- -0- 20,000 33,172
Financial Officer 1994 180,200 39,333 -0- -0- 25,000 42,110
<FN>
- --------------
(1) Represents total base salary earned by the named officers, including
amounts earned but deferred at the officer's election. Mr. Elgaway began
his employment with Watkins-Johnson Company in July 1995; therefore, his
1995 salary amount is for a partial year only.
(2) Represents the vested portion of the Top Management Incentive Bonus Plan in
the year awarded, and the bonus from the Employees' Cash Profit Sharing
Bonus Plan, in which all employees of the Company participate based on a
fixed percentage of pretax profits allocated over the salary base. Dr.
Watkins does not participate in either of the aforementioned plans.
(3) The aggregate amount of perquisites and other personal benefits, securities
or property, given to each named officer valued on the basis of aggregate
incremental cost to the Company, was less than either $50,000 or 10% of the
total of annual salary and bonus for that officer during each of these
years.
(4) Represents incentive stock option awards; although the Company's 1991 Stock
Option and Incentive Plan permits grants of restricted stock and stock
appreciation rights, no such grants have been made. For 1996 the Board of
Directors determined that it was in the best interest of the Company to
grant stock options only to those members of the executive staff who had
not over the past several years received significant grants. The members of
the executive staff who received grants are all relatively new members of
this group.
(5) Represents Company matching contributions to the 401(k) portion of the
Employees' Investment Plan in 1996 and 1995, and Company contributions to
the Employees' Profit Sharing Investment Plan for 1994, and also includes
Company contributions to the Employee Stock Ownership Plan for all named
officers. Additionally includes the unvested, deferred portion of the Top
Management Incentive Bonus Plan in the year awarded for all named officers.
Amounts shown for 1996 consist of the following: 401(k) matching
contributions of $4,500 each for Messrs. Kennedy, Gilbert, Elgaway, and
Buchanan and ESOP contributions of $1,500 each to Messrs. Kennedy, Gilbert,
Elgaway, and Buchanan, respectively; and the unvested, deferred Top
Management Incentive Bonus Plan awards of $33,211, $11,156, $64,817 and
$11,268 for Messrs. Kennedy, Gilbert, Elgaway, and Buchanan respectively.
For 1996 and 1995, the method for calculating the bonus was based on a
formula using certain measurement factors that include profit from
operations, firm orders and return on controllable assets (ROCA). Fifty
percent of the dollar value so awarded is deferred to appreciate or
depreciate based on the ROCA for each participant's organization. This
deferred bonus amount vests after two years from the award date and is then
valued based on the ROCA measurement for the participant's organization at
that time. Previously, awards were granted in the form of bonus units that
were determined by dividing the dollar value of the award by the December
31 book value per share, based on the Company's consolidated balance sheet.
For 1994, the bonus units so determined vested at 50% each year on the
anniversary date of award, and become fully vested after two years. All
unvested bonus dollars or units are subject to a risk of forfeiture if the
executive leaves the Company prior to the vesting dates. Dr. Watkins does
not participate in the ESOP or the Top Management Incentive Bonus Plan.
</FN>
</TABLE>
7
<PAGE>
1996 OPTION/SAR GRANTS TABLE
The following table sets forth incentive stock options granted to the named
officers during 1996 under the Company's 1991 Stock Option and Incentive Plan.
No stock appreciation rights (SARs) were granted in 1996.
<TABLE>
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<CAPTION>
INDIVIDUAL GRANTS
- ---------------------------------------------------------------------------------- POTENTIAL REALIZABLE VALUE
NUMBER OF % OF TOTAL AT ASSUMED ANNUAL RATES
SECURITIES OPTIONS/SARS OF STOCK PRICE APPRECIATION
UNDERLYING GRANTED TO EXERCISE OR FOR OPTION TERM(3)
OPTIONS/SARS EMPLOYEES IN BASE PRICE EXPIRATION ---------------------------
NAME GRANTED (#)(1) FISCAL YEAR ($/SH)(2) DATE 5%($) 10%($)
---- -------------- -------------- ------------- ------------ ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
W. Keith Kennedy ........ -0- -0- -0- -0- -0- -0-
Dean A. Watkins ......... 3,000 1.63% $34.625 04/29/2006 $ 65,000 $ 165,000
Keith D. Gilbert ........ -0- -0- -0- -0- -0- -0-
Marc C. Elgaway ......... 30,000 16.3% 21.625 07/29/2006 409,000 1,032,000
Scott G. Buchanan ....... -0- -0- -0- -0- -0- -0-
All Optionees(4) ........ 184,000 100.0% 21.625 -- 2,507,000 6,327,000
All Shareholders(5) .... -- -- -- -- 113,404,000 286,211,000
All Optionees' Gain as a
percentage of All
Shareholders' Gain ..... 2.2% 2.2%
<FN>
- -----------
(1) For 1996 the Board of Directors determined that it was in the best interest
of the Company to grant stock options only to those members of the
executive staff who had not over the past several years received
significant grants. The members of the executive staff who received grants
are all relatively new members of this group. Options granted in 1996 were
incentive stock options up to the maximum allowed for each officer under
Internal Revenue Code 422. The remaining awards were nonqualified stock
options. Both incentive and nonqualified options are exercisable after 2
years from the grant date at a rate of 33 1/3 % per year, with full vesting
occurring after the 4th anniversary date; however, all options become
immediately exercisable in the event of a change in control of the Company.
The options were granted for a term of 10 years, subject to earlier
termination in certain events related to termination of employment.
(2) Exercise or base price is the fair market value of the underlying shares on
the date of grant. Options may be exercised with cash or by delivery of
already-owned shares of Watkins-Johnson Company common stock.
(3) The 5% and 10% assumed annual rate of stock price appreciation would result
from per share prices of $34.625 and $21.625, respectively, for all named
officers. Said assumed rates are not intended to represent a forecast of
possible future appreciation of the Company's common stock or total
shareholder return.
(4) For "All Optionees," the number of options granted is the total of all
options granted to Company employees in fiscal year 1996. The potential
realizable value is based on the $21.625 per share price of the options
granted to the named executive officer, as well as other officers, on July
29, 1996, and based on a ten-year option term (the term of all options
granted in fiscal year 1996).
(5) For "All Shareholders," the potential realizable value is based on a
ten-year appreciation of the 8,324,014 shares outstanding on July 29, 1996,
and on the $21.625 per share price of the options granted to the named
executive officer, and other officers, on that date.
</FN>
</TABLE>
8
<PAGE>
<TABLE>
1996 OPTION EXERCISES AND YEAR-END VALUE TABLE
The following table sets forth stock options exercised by any of the named
executive officers during 1996, and the number and value of all unexercised
options at year end. The value of "in-the-money" options refers to options
having an exercise price which is less than the market price of Watkins-Johnson
stock on December 31, 1996.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION/SAR VALUES
<CAPTION>
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY OPTIONS/SARS
OPTIONS/SARS AT FY-END
AT FY-END (#) ($)(2)
VALUE ------------------------- ---------------
SHARES ACQUIRED REALIZED EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE(#) ($)(1) UNEXERCISABLE UNEXERCISABLE
- ------------------ --------------- ------------- --------------- ---------------
<S> <C> <C> <C> <C>
W. Keith Kennedy .8,067 $90,627 105,901 / $653,876 /
203,333 439,993
Dean A. Watkins .. -0- -0- -0- / -0- /
-0- -0-
Keith D. Gilbert .5,000 61,870 28,332 / 254,369 /
50,002 156,264
Marc C. Elgaway .. -0- -0- -0- / -0- /
70,000 86,250
Scott G. Buchanan 1,000 10,375 22,783 / 186,556 /
41,667 89,792
<FN>
- ----------
(1) Based on the market price of the underlying shares at exercise date less
the exercise price. (2) Based on the market price of the Company's common
stock at 12/31/96, which was $24.50 per share, less the exercise price.
</FN>
</TABLE>
SECTION 16 (A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
A Form 5 for Joan M. Varrone, Treasurer, reporting the grant of options, was
filed six months late.
EXECUTIVE EMPLOYMENT AGREEMENTS
In 1996, the Company executed a four-year employment agreement with Dr.
Kennedy which, in addition to providing for a base salary, contains the
following terms: The agreement may be terminated for cause, in which case
compensation ceases as of the date of notice. If the agreement is terminated
without cause, compensation for the remainder of the term plus six months
severance becomes immediately payable. The employee may not thereafter, for a
period of two years, engage in competition with the Company. In the event of a
change in control, as defined in the agreement, the employee may cancel the
agreement for breach, upon 30 days written notice, and immediately collect the
compensation due for the remainder of the term. The term of the agreement is
four years, with the intention that it will be renewed after one year for three
years and then be renewed every year for three years in order to reflect his
current salary and, in effect, extend the agreement term for an another year. In
1995 the Company executed a three- year employment agreement with Mr. Elgaway
which continues in effect. The agreements for Messrs. Kennedy and Elgaway were
concluded after their base salaries were determined using the financial
performance criteria and factors set forth under the compensation programs and
policies described for the chief executive and other officers in the
Compensation Committee report.
The Company maintains three-year severance agreements with other executives
which provide that if after a change in control, the employee is terminated
other than for good cause, as defined in the
9
<PAGE>
agreement, or suffers a substantial alteration in the terms of employment and
terminates his or her own employment because of such alteration, the Company is
obligated to pay the terminated employee 299.999% of the employee's yearly base
salary compensation. The employee also has the right to terminate employment
after 90 days and within 120 days of the change in control and receive from the
Company one-half of the amount described above.
REPORT OF THE BOARD OF DIRECTORS' COMPENSATION COMMITTEE
COMPENSATION PROGRAM AND POLICIES
The Compensation Committee is responsible for establishing and administering
the policies which govern base salaries, short- and long-term incentive
compensation and stock ownership programs for the Chief Executive Officer and
other executive officers. During the past year, the Committee was composed of
three outside directors, Raymond F. O'Brien, Chairman, William R. Graham and
Gary M. Cusumano.
Watkins-Johnson's compensation program is designed to attract and retain
employees at all levels who will contribute to the long-range success of the
Company. At the executive level, the program is broadened to reward key managers
for achieving both short- and long-term strategic Company goals, to link
executive and shareholder interests through stock-based plans, and to provide
compensation packages that recognize individual contributions as well as overall
business results. Therefore, a significant portion of each executive's total
compensation is intended to be variable and is contingent upon overall Company
results, success of the executive's business unit, and accomplishment of
individual performance goals.
Each year, the Committee conducts a careful review and evaluation of
Watkins-Johnson's corporate performance, its executive compensation, and its
incentive programs compared with two broad-based surveys of high-technology
companies, as well as a smaller selection of geographically-related peer
companies of similar size and organizational structure. These surveys are used
to ensure that the Company's compensation practices are competitive in the
markets in which it operates, and that its employees are fairly paid. The first
two surveys present comparative information on all aspects of executive
compensation used by high-technology companies nationwide, while data from the
selection of peer companies presents compensation practices of companies that
are closely aligned to Watkins-Johnson in terms of size, revenues and product
lines. Analysis of all information combined enables the Company and the
Committee to make well-informed decisions.
The three principal components of the Company's executive compensation
program in 1996 were base salary, stock options, and a combined short- and
long-term incentive award. Following are discussions of the Committee's
philosophy and action in each area.
Base Salaries. Base salaries are designed primarily to attract and retain
individuals, and to be competitive in our marketplace. Based on the information
obtained from the salary surveys referenced above, base salary levels are deemed
competitive if they are between the 50th and 75th percentiles of the marketplace
for similar positions. The Company strives to pay its executives within this
range, with salaries falling at low, high or medium-range depending on the
following performance considerations. To arrive at base salary adjustments for
1996, the Committee considered the Company's financial performance in 1995,
including the executive's business unit performance against the annual profit
plan. Three factors--achieving planned profit, obtaining additional profitable
orders, and developing new business for the long term--were considered. These
factors were not assigned specific weights, but profit was considered most
important, with orders secondary. Other factors considered in arriving at base
salary adjustments related to the executive's individual performance and
included overall managerial effectiveness, success in promoting teamwork and an
ability to recognize and act upon the changing requirements of the workplace.
Adjustments to executive base salaries in 1996 were also based on a qualitative
analysis of each position's current responsibilities and expected contribution
to the Company's continuing advance into new areas of business.
Stock Options. Under the 1991 Stock Option and Incentive Plan, stock options
may be granted to executive officers and other key employees of the Company. The
purpose of the awards is to align the
10
<PAGE>
executives' interests with those of shareowners. The size of stock option grants
is measured by the same financial and individual performance criteria used to
determine base salaries, and by the individual's position and responsibilities
in the Company. In addition, consideration is given to the amount and term of
options already held. All stock options awarded to date under this plan have
been granted with an exercise price equal to the fair market value of the
Company's stock on the date of grant, with current grants beginning to vest
after two years and becoming fully vested after four years. This is designed to
encourage the creation of shareholder value over the long term, since no benefit
is realized from the option grant unless the price of the Company's stock rises
over a period of years.
The Company does not have a policy that requires the Committee to qualify
stock options awarded to executive officers for deductibility under Section
162(m) of the Internal Revenue Code of 1986, as amended. However, consideration
of the net cost to the Company is always a factor in making compensation
decisions.
Short- and Long-term Incentive Awards. The Top Management Incentive Bonus
Plan is designed to reward executives based on achievement of certain
predetermined goals, which include overall corporate results, business unit
performance, and certain qualitative factors such as organizational and
management development. These goals are formula-based, and weighted so that 80%
of the award is made on performance against financial objectives of
profitability, return on controllable assets (ROCA), and obtaining new business;
and 20% is based on qualitative goals relating to strategic planning,
development of staff, and positioning of the business unit for future growth.
The performance criteria were individually tailored to each executive and his or
her area of responsibility, and the awards could range from zero to a percentage
of an executive's base salary, based on progressively difficult levels of
achievement. In order to encourage attainment of the Company's long-term goals
for continued growth and profitability, the award is paid in two increments. The
first part, or 50% of the award, is paid in cash during the first quarter of the
year after it is earned. The second increment, the remaining 50% of the award,
is deferred. In 1995, and continuing in 1996, the procedure used for retention
of this deferred portion was changed to allow the dollar value so awarded to
appreciate or depreciate based on the ROCA for each participant's organization.
The deferred amount vests after two years from the award date and is then valued
based on the ROCA measurement for the participant's organization at that time.
Thus, executives' interests are more closely aligned with those of our
shareowners. Previously, the remaining 50% of the award was deferred in the form
of bonus units, which were valued based on the Company's net book value at year
end, and which vested over a two-year period at 50% annually as of each December
31 following the award date. If the executive leaves the Company during the
deferral period, any unvested dollars or units are forfeited. Both the 50%
vested portion of the award and the 50% deferred amount earned in 1996 by the
named officers are shown under the Summary Compensation Table on page 7. The Top
Management Incentive Bonus Plan is currently under review by the Compensation
Committee and may be revised for 1997.
Short- and Long-term Profit Sharing Plans. In order to encourage employees'
interest and alignment with the Company's business objectives and performance
goals, the Company has established a profit-sharing plan under which it shares a
portion of its profits with all eligible employees, including executive
officers. The Employees' Cash Profit Sharing Bonus Plan distributes 6% of annual
pretax profits to all employees who have been employed for more than 90 days
during the prior fiscal year. The 6% profit amount is based on each business
unit's annual pretax profit, thereby giving employees a good understanding of
and reward for the achievements made within their own work areas. In 1995, the
Company modified the long-term Employees' Profit Sharing and Investment Plan by
discontinuing its annual pretax profit sharing contributions, and adding a
Company matching contribution on employee 401(k) deferrals. The plan was renamed
the Watkins-Johnson Employees' Investment Plan, and participants' accounts
automatically became 100% vested without regard to length of service. The Plan,
as continued, is an ERISA-based plan and participants' accounts are distributed
upon retirement, or earlier termination from the Company. There are no specific
performance criteria relating to these plans.
Top Management Deferred Compensation Plan. In 1994, the Board approved
implementation of a non-qualified deferred compensation plan for the Company's
executives. Under the plan, participants may elect to defer up to 15% of their
base salary which will earn the prime rate in effect at the beginning
11
<PAGE>
of each quarter. The election to defer must be made prior to the year during
which the compensation is earned and cannot be revoked once the elected year
begins. Funds so deferred will be distributed in a lump sum only upon the
earlier of retirement, termination, death, disability, hardship, or change in
executive status.
COMPENSATION OF THE CHIEF EXECUTIVE OFFICER
The same policies and programs described above were followed by the Committee
in determining the 1996 compensation for Dr. Kennedy. As with the other
executive officers, base salary is set, stock option awards are considered, and
performance criteria are developed for the incentive bonus plan in February each
year, based on the Company's financial performance and the CEO's individual
contributions in the previous year.
The criteria for considering Dr. Kennedy's base salary included the Company's
overall performance in 1995 and its continued profitability due to constant
monitoring of costs and elimination of nonvalue- added activities. Company
performance factors included the percentage of profitability achieved against
the annual profit plan, new orders booked, and the successful execution of the
corporate strategic plan to prepare the Company for future growth and
profitability. There were no specific weights assigned to these factors. He
continued his strong leadership of the Company during 1995, a period of
unprecedented growth and transition, and set an example for his staff and all
Company employees. After careful study of chief executive officer salaries from
the survey information described under Compensation Programs and Policies, it
was determined that Dr. Kennedy's base salary had remained unchanged since 1991,
that his base salary fell within the 50th to 75th percentile range, and that he
had had an outstanding year as CEO during 1995. Therefore, the Committee decided
there should be an increase of $25,000 in Dr. Kennedy's base salary for 1996.
The criteria established for Dr. Kennedy's incentive bonus award are the same
as those set for other executive officers. The award is based on achievement of
predetermined goals, with 80% based on financial objectives and 20% on certain
qualitative goals. The Committee met at the beginning of 1996 to approve the
formula-based goals for Dr. Kennedy and other executive officers, and to
establish his qualitative goals for the year. As chief executive officer, his
financial measurements related to overall profitability and growth objectives
for the whole Company, rather than individual business units, and his
qualitative goals were based on development and execution of current and
long-term strategies, development of management, and strengthening the total
organization. The Committee then met just before year end 1996 to review the
Company's financial results, and to evaluate his performance against his
qualitative objectives. As with the other executive officers, the extent to
which the formula factors are met, based on progressively difficult levels of
achievement relating to financial returns and individual goals, determines the
size of the award. Dr. Kennedy's corporate financial performance goals for 1996,
together with achievement of his qualitative goals, were met at a level that
resulted in an award to Dr. Kennedy under the incentive bonus plan equal to
14.5% of his base salary. However, 50% of the award, the long-term portion, is
subject to change based on future appreciation or depreciation of the Company's
return on controllable assets (ROCA).
During 1996, the semiconductor equipment market did not perform as well as
had been anticipated at the beginning of the year. However, under Dr. Kennedy's
management, early awareness of market change was recognized and steps were taken
in a timely manner to minimize adverse affects.
The Compensation Committee
Raymond F. O'Brien, Chairman
William R. Graham
Gary M. Cusumano
12
<PAGE>
WATKINS-JOHNSON STOCK PERFORMANCE GRAPH
The following graph compares the cumulative total shareholder return (change
in stock price plus reinvestment of dividends) of $100 invested on December 31,
1991, in the Company's common stock, the Standard & Poor's 500 Composite Index,
and the Dow Jones Diversified Technology Index for a period of five years. The
Standard & Poor's Composite Index was chosen as our broad equity market index
because of its wide distribution and recognition by shareholders. The Dow Jones
Diversified Technology Index was selected as having a representative industry
peer group of companies. The Dow Jones index includes 11 companies with at least
2 high-technology business segments.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN*
AMONG WATKINS-JOHNSON COMPANY, THE S & P 500 INDEX
AND THE DOW JONES DIVERSIFIED TECHNOLOGY INDEX
Cumulative Total Return
----------------------------------------------------------
12/91 12/92 12/93 12/94 12/95 12/96
Watkins Johnson Co 100 137 194 295 438 250
S & P 500 100 108 118 120 165 203
DJ DIVERSIFIED
TECHNOLOGY 100 110 129 133 182 233
* $100 INVESTED ON 12/31/91 IN STOCK OR INDEX--
INCLUDING REINVESTMENT OF DIVIDENDS.
FISCAL YEAR ENDING DECEMBER 31.
13
<PAGE>
APPOINTMENT OF INDEPENDENT PUBLIC ACCOUNTANTS
(ITEM 2 ON PROXY CARD)
The Board of Directors has appointed the firm of Deloitte & Touche as
independent accountants of the Company for the current fiscal year, subject to
the approval of shareowners. The Board of Directors expects that a
representative of Deloitte & Touche will be present at the annual meeting of
shareowners, will be given an opportunity to make a statement at the meeting if
desired, and will be available to respond to appropriate questions.
The vote required for approval of such appointment is a majority of the
shares present in person or by proxy at the meeting.
The Board recommends that shareowners vote "FOR" the appointment.
OTHER MATTERS
As of the date of this Proxy Statement, the Board of Directors does not
intend to bring any other business before the meeting and, so far as is known to
the Board of Directors, no matters are to be brought before the annual meeting
except as specified in the notice of the annual meeting. However, as to any
other business that may properly come before the annual meeting, it is intended
that proxies, in the form enclosed, will be voted in respect thereof, in
accordance with the judgment of the persons voting such proxies.
SHAREOWNER PROPOSALS--1998 ANNUAL MEETING
Shareowners are entitled to present proposals for action at a forthcoming
shareowners' meeting if they comply with the requirements of the proxy rules.
Any proposals intended to be presented at the 1998 Annual Meeting of Shareowners
of the Company must be received at the Company's offices on or before October
31, 1997, in order to be considered for inclusion in the Company's proxy
statement and form of proxy relating to such meeting.
Claudia D. Kelly, Secretary
February 24, 1997
Palo Alto, California
YOU ARE CORDIALLY INVITED TO ATTEND THE ANNUAL MEETING IN PERSON. WHETHER OR
NOT YOU PLAN TO ATTEND THE ANNUAL MEETING, YOU ARE REQUESTED TO SIGN AND RETURN
THE ACCOMPANYING PROXY IN THE ENCLOSED POSTAGE-PAID ENVELOPE.
14
<PAGE>
APPENDIX A
PROXY WATKINS-JOHNSON COMPANY PROXY
ANNUAL MEETING OF SHAREOWNERS--APRIL 5, 1997
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
The undersigned hereby appoints Dr. Dean A. Watkins, Mr. John J. Hartmann,
and Dr. William R. Graham as proxies of the undersigned, each with full power of
substitution, to attend the Annual Meeting of Shareowners of Watkins-Johnson
Company to be held at the main office of the Company, 3333 Hillview Avenue, Palo
Alto, California 94304, at 10:00 o'clock in the morning on Saturday, April 5,
1997, and at any adjournment or postponement thereof, and to vote the number of
shares the undersigned would be entitled to vote if personally present on any of
the following matters and with discretionary authority as to any and all other
matters that may properly come before the meeting.
THIS PROXY WILL BE VOTED AS SPECIFIED, OR IF NO CHOICE IS SPECIFIED, WILL BE
VOTED FOR THE NOMINEES FOR ELECTION AND FOR PROPOSALS 2 AND 3.
(Continued, and to be signed on the other side)
<PAGE>
[X] Please mark
your votes
as this
MANAGEMENT RECOMMENDS A VOTE FOR THE NOMINEES FOR
DIRECTOR LISTED BELOW AND FOR PROPOSAL 2 AND 3.
1. Election of Directors
WITHHOLD
FOR FOR ALL
To withhold authority to vote for any
individual nominee, strike a line [ ] [ ]
through that nominee's name in the
list below:
Dean A. Watkins
H. Richard Johnson
W. Keith Kennedy
John J. Hartmann
Raymond F. O'Brien
William R. Graham
Gary M. Cusumano
Robert L. Prestel
I PLAN TO ATTEND THE MEETING [ ]
FOR AGAINST ABSTAIN
2. To approve the appointment of Deloitte & [ ] [ ] [ ]
Touche as independent accountants
of the Company for the fiscal year 1997.
3. In their discretion, to vote upon any [ ] [ ] [ ]
and all such other matters as may
properly come before the meeting or
any adjournment or postponement thereof.
PLEASE SIGN EXACTLY AS NAME APPEARS. WHEN SHARES ARE HELD BY JOINT TENANTS, BOTH
SHOULD SIGN. WHEN SIGNING AS ATTORNEY, AS EXECUTOR, ADMINISTRATOR, TRUSTEE OR
GUARDIAN, PLEASE GIVE FULL TITLE AS SUCH. IF A CORPORATION, PLEASE SIGN IN FULL
CORPORATE NAME BY PRESIDENT OR OTHER AUTHORIZED OFFICER. IF A PARTNERSHIP,
PLEASE SIGN IN PARTNERSHIP NAME BY AUTHORIZED PERSON.
Signature(s) _____________________________________ Dated _______________, 1997
SHAREOWNERS ARE URGED TO MARK, DATE, SIGN AND RETURN THIS PROXY IN THE
ENVELOPE PROVIDED, WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES.
<PAGE>
APPENDIX B
PROXY DIRECTION TO TRUSTEE PROXY
WATKINS-JOHNSON COMPANY EMPLOYEE STOCK OWNERSHIP PLAN
WATKINS-JOHNSON EMPLOYEES' INVESTMENT PLAN
I hereby direct you as Trustee of the Watkins-Johnson Employee Stock
Ownership Plan and the Watkins-Johnson Employees' Investment Plan to vote the
shares of Watkins-Johnson Company common stock credited to my account under the
aforementioned plans at the Annual Meeting of Shareholders of Watkins- Johnson
Company, to be held at the main office of the Company, 3333 Hillview Avenue,
Palo Alto, California 94304, at 10:00 o'clock in the morning on Saturday, April
5, 1997, and at any adjournment or postponement thereof.
I have filled in the appropriate boxes on the other side of the card, and I
authorize you to vote as indicated. Pursuant to the plans, in the absence of any
instructions from me as to any item, shares credited to my account shall be
voted by you, as Trustee, in the same proportion as shares are voted for which
instructions are received.
(Continued, and to be signed on the other side)
<PAGE>
[X] Please mark
your votes
as this
MANAGEMENT RECOMMENDS A VOTE FOR THE NOMINEES FOR
DIRECTOR LISTED BELOW AND FOR PROPOSAL 2 AND 3.
1. Election of Directors
WITHHOLD
To withhold authority to vote for any FOR FOR ALL
individual nominee, strike a line
through that nominee's name in the [ ] [ ]
list below:
Dean A. Watkins
H. Richard Johnson
W. Keith Kennedy
John J. Hartmann
Raymond F. O'Brien
William R. Graham
Gary M. Cusumano
Robert L. Prestel
I PLAN TO ATTEND THE MEETING [ ]
FOR AGAINST ABSTAIN
2. To approve the appointment of Deloitte & [ ] [ ] [ ]
Touche as independent accountants
of the Company for the fiscal year 1997.
3. In their discretion, to vote upon any [ ] [ ] [ ]
and all such other matters as may
properly come before the meeting or
any adjournment or postponement thereof.
PLEASE SIGN EXACTLY AS NAME APPEARS. WHEN SHARES ARE HELD BY JOINT TENANTS, BOTH
SHOULD SIGN. WHEN SIGNING AS ATTORNEY, AS EXECUTOR, ADMINISTRATOR, TRUSTEE OR
GUARDIAN, PLEASE GIVE FULL TITLE AS SUCH. IF A CORPORATION, PLEASE SIGN IN FULL
CORPORATE NAME BY PRESIDENT OR OTHER AUTHORIZED OFFICER. IF A PARTNERSHIP,
PLEASE SIGN IN PARTNERSHIP NAME BY AUTHORIZED PERSON.
Signature(s) _____________________________________ Dated _______________, 1997
SHAREOWNERS ARE URGED TO MARK, DATE, SIGN AND RETURN THIS PROXY IN THE
ENVELOPE PROVIDED, WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES.
